Fast Food & You: Taking the Temperature of the New Minimum Wage

“‘A merry Christmas, Bob,’
said Scrooge, with an earnestness that could not be mistaken, as he clapped him
on the back. ‘A merrier Christmas, Bob, my good fellow, than I have given you
for many a year. I’ll raise your salary, and endeavor to assist your struggling
family, and we will discuss your affairs this very afternoon, over a Christmas
bowl of smoking bishop, Bob. Make up the fires, and buy another coal-scuttle
before you dot another ‘i,’ Bob Cratchit!’”[1]

The
holiday season has traditionally been a time when struggling finances are even
more pronounced, and stressed households need all the help they can get to make
ends meet. This year, the families of fast food workers in New York State will
see a new “holiday bonus” to add to their coffers, though not quite on the
Dickensian scale. The end of 2015 will mark the beginning of gradual minimum
wage increases that are staggered over a several year period.

I.Regulatory Changes

Employers
in New York State should be aware of the regulatory changes effective at the
beginning of 2016 regarding the minimum wage. On September 10, 2015, the
Commissioner of Labor for New York State Mario Musolino issued an Order that
instituted the July 31, 2015 recommendations of the Fast Food Wage Board. These
recommendations set forth a plan to gradually increase the minimum wage for
only fast food workers[2]
to $15.00 per hour by December 31, 2018 for New York City, and by July 1, 2021
for the rest of New York State.

The
Wage Board’s Resolution from July gives the following timeline for all of New
York State except New York City:

12/31/15:
$9.75 (up from $8.75)

12/31/16:
$10.75

12/31/17:
$11.75

12/31/18:
$12.75

12/31/19:
$13.75

12/31/20:
$14.50

7/01/21:
$15.00

For
New York City, the timeline is as follows:

12/31/15:
$9.75 (up from $8.75)

12/31/16:
$12.00

12/31/17:
$13.50

12/31/18:
$15.00

Two
conclusions may be drawn from the timelines set forth by the board: first, the
$15 wage was not proposed to be an immediate upgrade. Second, the proposal
recognizes the higher cost of living in New York City by accelerating the
timeline to $15.00 by two and a half years, without providing any increases in
the City after 2018.

The
Fast Food Wage Board, appointed by the Commissioner of Labor, found that “fast
food workers are twice as likely to be members of families with earnings below
or near poverty than the workforce as a whole.” [3]
The Board further found that the nature of the work “requires a tremendous
amount of cognitive coordination and balancing of simultaneous demands, and
that workers routinely perform a variety of complex tasks often under extreme
time pressure and poor working conditions.”[4]
Also considered was the psychological effect of the comparatively low wages on
the workers. The Board further found compelling the assertion that
multinational corporations that owned fast food chains (constituting 62% of all
fast food worker employers) benefitted from underpaying employees, requiring
extensive public subsidy.[5]
The Board’s report estimated that 60% of fast food workers receive such public
assistance.[6]

The
Fast Food Wage Board consisted of the representative of “the public,” Mayor of
Buffalo Byron Brown (first assumed office December 31, 2005 for the
culturally-rich city that shoulders the mantle of the country’s third-poorest
city with a poverty rate over thirty percent, based on recent US Census Bureau
data[7]);
representative of “businesses” Kevin Ryan (“internet entrepreneur,” Yale
undergraduate and INSEAD M.B.A.; Ernst & Young’s 2009 Entrepreneur of the
Year); representative of “labor” Michael Fishman (Secretary-Treasurer of the
Service Employees International Union); as well as each respective board member’s
inevitable host of assistants and interns.[8]
This symbolic selection of individuals was by no means perfect, but the
appointment of whom was completely within the purview of the Commissioner of
Labor.

Unlike
former minimum wage increases implemented by the Legislature, the Commissioner
of Labor is empowered by Article 19 of the Labor Law, the Minimum Wage Act, to
institute this Order instead of the Legislature, dramatically accelerating the
process. Article 19 § 654 empowers such a wage board to determine sufficiency
of the amount of minimum wage, considering “the value of the work or classification
of work performed, and the wages paid in the state for work of like or
comparable character.” According to § 655, a maximum of three representatives
may be appointed by the Commissioner of Labor, and make wage recommendations
that “shall not be in excess of an amount sufficient to provide adequate
maintenance and to protect the health of the employees.”[9]

II.Covered Entities

The
Commissioner of Labor issued an Order on September 10, 2015 that exactly incorporated
the bifurcated timelines recommended by the Wage Board for New York City and
the rest of the state.[10]
The Commissioner’s Order very nearly copied the definitional language of the
Wage Board resolutions, with two exceptions: first, a “Fast Food Establishment”
will be one “which has as its primary
purpose serving food or drink items” (emphasis added). Second, the Order
added the sentence “‘Fast Food Establishment’ shall include such establishments
located within non-Fast Food Establishments.” Further, the affected establishments
are only those with thirty or more locations in the United States, owned either
directly by the larger enterprise or franchises of those enterprises. Therefore,
even small franchisors of chain restaurants will be affected, even if they own
less than thirty locations. “The little guy,” the mom-and-pop establishment
performing the same fast food function in the marketplace will not be forced to
pay this wage increase (however – Governor Cuomo announced on November 10, 2015
his intentions to raise the state minimum wages across all sectors[11]).

III.Employer Compliance

Compliance
with the new regulations will simply mean the timely payment of correct wage
rates. However, those businesses not affected by the fast food September 2015
Order still must observe a minimum wage increase that was mandated by the
2013-14 Budget. In the aftermath of the Occupy Wall Street and Living Wage
movements, the New York State legislature acted by providing in the 2013-14
Budget for an increase from $7.25 per hour to $9.00 per hour over a three year
period.[12]
The timeline was as follows:

12/31/13:
$8.00

12/31/14:
$8.75

12/31/15:
$9.00

This
change applied to all sectors of employment as a minimum wage increase.
Notwithstanding the Fast Food wage increase, all sectors of employment are
subject to the minimum wage of $9.00 on December 31, 2015. Concerning the first
mandatory fast food wage increase, it is 75 cents more per hour than what would
have been mandated without the Wage Board’s recommendation: the 2013 – 2014 NYS
Budget had already provided for a $9.00 per hour minimum wage by December 31,
2015.

Specifically
in the context of delivery services, such as pizza delivery, the minimum wage
increase applies to all non-tipped workers. Regarding tipped workers that
actually carry out the delivery, this has historically functioned as a separate
group of employees: earlier in 2015, the Commissioner took the recommendation
of another wage board. This group of three different individuals issued a
report on February 2, 2015 to consolidate a haphazard mess of tipped worker
classes, and to afford the single new tipped worker class one rate of hourly
pay.[13]
Again exercising his § 655 powers, Commissioner Musolino instituted his Board’s
recommendation and issued the order of February 24, 2015.[14]
This order created a $7.50 hourly wage for any tipped worker in the state,
effective December 31, 2015.

Importantly,
the combined hourly tipped minimum wage plus tips must amount to the non-tipped
minimum wage (12 N.Y.C.R.R. § 146-1.3(a)). This is not a new change to the
legal landscape. Let’s use an example to illustrate: Wanda Worker does pizza
delivery and will be paid $7.50 per hour after December 31, 2015. On January 1,
Wanda must indefatigably work on New Year’s Day, delivering pizzas to the
tired, hung over masses. However, the bleary-eyed masses are cheap: after
working for 6 hours, she only earns $2 in tips! Wanda’s boss, Supervisor
Scrooge, is unaware of the tipped hour requirement and gives Wanda $45. Wanda
is due at least $54 for the day: 6
hours at $9.00 per hour (the new minimum wage). Instead, Wanda walked away with
$47. Though this seems like much ado about a mere $7, this daily shortfall may
quickly add up for Wanda, who may subsequently read this very article and seek back pay. If Wanda shares this tidbit
with her similarly shortchanged coworkers (which, depending on the
circumstances, may be her right under the National Labor Relations Act), the
matter may balloon to an unpleasant critical mass. The requirement underscores
the importance of complete and accurate tip recording from tipped workers.

IV.Predicted Effects

An
economist would be better-suited than I to make predictions as to the effect
these mandatory wage increases will have over time on the state economy and
labor force. For the fast food sector, it is perfectly reasonable to speculate
that franchisors for larger chains that are subject to the greater wage may go
out of business for lack of a sustainable profit margin. It is also reasonable
to speculate that the better-equipped franchisors will further automate their
restaurants, putting laborers out of a job. Those unable to automate may be
left behind, forced to sell their restaurants.

Importantly,
it is too early to tell whether the good intentions of the Fast Food Wage Board
and the Commissioner of Labor will be realized, either regarding the mitigation
of public subsidy or the social benefit to the individual worker. The
corporations affected by the fast food wage changes may also be poised to
initiate future lawsuits contesting the legality of the single-sector wage
hike.

Regardless
of the cross-sector impact of the already-approved schedule of wage increases
for New York State, employers must be aware of their new obligations to their
employees as of the end of December, 2015. For the fast food restaurant employer
in the category of over 30 locations nationally, the worker must be paid $9.75,
and all others must be paid $9.00. Tipped workers will earn $7.50 per hour. Otherwise,
the Scrooges among us should expect a festive holiday haunting by the Department
of Labor.

This article is a
publication of Osborn, Reed & Burke, LLP: Rochester, New York. Our purpose
in publishing this article is to inform clients and colleagues of recent legal
developments. It is not intended, nor should it be used, as a substitute for
specific legal advice in an employment or any context, as legal counsel may
only be given in response to inquiries regarding particular situations.

[2] This will be the first
sector-specific minimum wage increase in the state’s history, and notably, the
change does not involve an entire Principal Business Activity NAICS sector
(http://www.tax.ny.gov/pdf/publications/general/pub910.pdf).

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